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Multistate Payroll Tax Compliance: Finding a Path Through the Tangle of Laws

Tuesday, May 29, 2018

Navigating the requirements of payroll tax withholding for a multistate workforce can feel a bit like playing a game in which the rules are different for everyone – and subject to change with every turn.

There are states that require employers to withhold income tax from an employee's wages even if the employee has only one day of work in that state. In other states, withholding requirements are triggered by a threshold of wages. There's little consistency there either, according to a map of the requirements created by the Mobile Workforce Coalition: It's $300 or more in a quarter in Oklahoma; in Minnesota, the threshold is pegged to the minimum income requirement for filing a state income tax return.

Coalition of Accounting and Business Groups Working to Simplify the Process

The Coalition is a group of 312 employers and associations working to pass legislation that would establish a uniform law covering tax withholding for employees who work in one state – or many states – but live in another.

Members of the Coalition include the American Payroll Association, the American Institute of CPAs, and numerous state CPA associations, along with chambers of commerce, and a long list of businesses with a workforce heavy on "road warriors" whose jobs require a lot of time in airports – and subject them to the patchwork of laws for paying state income tax.

Opposition from Big States a Major Hurdle to Simplification Efforts

Opponents of the proposed Mobile Workforce State Income Tax Simplification Act, which would establish a 30-day threshold for taxing the work of out-of-state residents, point to the financial loss the bill would impose on states, especially states like New York, which has a enormous population of non-resident workers traveling in and out of the state, and imposes state tax requirements after 14 days. Such opposition has derailed previous attempts at so-called "road warrior" compliance legislation, despite bipartisan support and widespread recognition that the current system is so complicated that few employers or road warriors ever get compliance 100 percent right.

Patchwork of Requirements No Defense Against Getting Compliance Wrong

In the meantime, you're expected to get compliance 100 percent right. Dan Thrailkill, a CPA and director at Ellin & Tucker in Baltimore, tells the CPA Practice Advisor that states are becoming more aggressive in their pursuit of those who get multistate tax compliance wrong.

Best Practices for Keeping up with Multistate Tax Rules

At Payroll Tax Management, we know the patchwork firsthand. We help our clients stay compliant in 11,000 taxing agencies across the country.

Download our whitepaper for more information on the multistate payroll tax compliance challenge and some best practices for staying out of trouble. For legal questions regarding state income tax liability, contact a lawyer who specializes in tax law.